Wheat Outlook: Up on Russian export ban, tighter supplies

CHICAGO (Dow Jones)--U.S. wheat futures are expected to extend gains Friday after climbing to their highest level in nearly two years on concerns that Russia will not be the only country in the former Soviet Union to curb grain exports due to a savage drought.

September wheat on the Chicago Board of Trade in overnight trading surged to $8.41 a bushel, a 7% increase from Wednesday's close and the highest price for a front-month contract since Aug. 26, 2008. The contract finished 13 1/4 cents, or 1.7%, higher at $7.99, up nearly 88% from a nine-month low in June.

CBOT wheat is expected to start the day session 10 to 15 cents a bushel higher. The day session begins at 10:30 a.m. EDT.

Volatile trading overnight reflected uncertainty about the impact of a Russian grain export ban and about the outlook for global supplies, traders said. CBOT September wheat overnight traded in a wide 61-cent range.

Russia, a major wheat producer and exporter, said Thursday it would stop exporting grain Aug. 15 because of a severe drought. However, Russia may adjust the ban according to the size of the harvest and will honor all of its existing contracts to export grain, First Deputy Prime Minister Igor Shuvalov said Friday.

The Russian Grain Union, based in the headquarters of the Agricultural Ministry, has asked the government to postpone the ban until Sept. 1 in order to allow grain en route to ports to leave the country. Some 700,000 tons of grain are awaiting export ahead of the ban, the official Russian grain industry association said.

Market participants are worried that other countries may follow Russia's lead and limit grain exports because of the drought that has slashed production expectations in the former Soviet Union. Russia asked Belarus and Kazakhstan, its partners in a recently formed customs union, to halt grain exports, fearing that Russian grain will be exported via the two countries.

"Grain must stay inside Russia until the government decides otherwise," Shuvalov said.

An official at Kazakhstan's agriculture ministry said there was currently no need to impose such a ban.

In Ukraine, stringent quality inspection rules for wheat exports are indefinitely delaying shipments and causing cancellation of deals, according to trading executives. It "looks like an unofficial ban is in place on exports because of the complicated rules on quality inspection and lack of customs clearance," said a Singapore-based exporter dealing in Ukrainian wheat.

Reduced exports from the former Soviet Union are expected to boost demand for wheat from other countries like the U.S, which has ample supplies. Weekly U.S. wheat export sales, released Thursday, beat expectations at 854,600 tons and were seen as a sign that buyers were stepping up purchases because of concerns about tightening world supplies.